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‘Bolshoi Petroleum’ deal collapses

18-05-2011

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Negotiations between British Petroleum and Rosneft, Russia's leading oil company, to develop three massive offshore exploration blocks in the Arctic have failed, according to media reports yesterday (17 May).

The 16-billion dollar deal, dubbed 'Bolshoi Petroleum' by the British media, was based on swapping a 5% stake in BP for a 9.5% stake in Rosneft.

But the $16-billion deal collapsed after BP and Rosneft made a cash-and-stock offer to buy out the Russian co-owners of TNK-BP, the Russian wing of British Petroleum.

TNK-BP is represented by the Alfa-Access-Renova (AAR) consortium. AAR represents a quartet of Russian billionaires who own half of TNK-BP.

The four billionaires who own half of TNK-BP were willing to sell their stake in return for shares in BP and Rosneft, enabling them to maintain a presence in the Russian oil sector, according to sources close to the parties quoted by Reuters.

BP and Rosneft had been prepared to pay more than $30 billion for the Russian partners' stake, AFP reported.

Reportedly, AAR had obtained a court injunction against the Rosneft deal, claiming it violated their TNK-BP agreement.

While Rosneft has other suitors to plumb the Arctic depths with, BP's fortunes have been struck a serious blow, the Moscow News comments.

A blow for BP

Now it looks like the door to the Arctic is closed for BP, and Rosneft is now looking for new partners for its Arctic projects, an unnamed source told AFP.

Sources cited by Reuters name Exxon, Chevron, Shell and Chinese firms as potential partners to explore the three Kara Sea blocks earmarked for the BP venture.

"Unless Rosneft decide to continue with negotiations, which is very unlikely, they will go back to the proposals they received during January through to March from Exxon, Shell and Chevron. Chinese and Indian guys have also expressed interest," Julia Novichenkova, an oil and gas analyst at Uralsib Capital, told the Moscow News.

But Reuters quoted BP sources as saying that the company still hoped to buy out its oligarch partners in TNK-BP, with whom it has long had a fractious relationship. This would reportedly remove a key risk that has weighed on BP's shares in recent months and at other times.

Positions

The collapse also marks a personal setback for Russia's Deputy Prime Minister Igor Sechin, Reuters comments. Sechin and his boss, Prime Minister Vladimir Putin, have become accustomed to being able to dictate terms in strategic oil deals, the agency adds.

Nothing in Russia is straightforward, as BP and its battered chief executive Bob Dudley have rediscovered, the Telegraph comments.

According to British daily, Dudley thought that he would secure the deal with the help of the Russian government.

"It was a miscalculation: the oligarchs dug in, secured the support of the courts – and won," says the Telegraph.

Background

The resource-rich Arctic is becoming increasingly contentious as climate change endangers many species of the region's flora and fauna but also makes the region more navigable. Up to 25% of the planet's undiscovered oil and gas could be located there, according to the US Geological Survey.

No country owns the North Pole or the region of the Arctic surrounding it. The surrounding Arctic states of the USA, Canada, Russia, Norway and Denmark (Greenland) have a 200- nautical-mile economic zone around their coasts. 

In August 2007, a Russian icebreaker reached the North Pole and a Russian mini-submarine planted a titanium Russian flag on the seabed there. The move was widely interpreted as a bellicose claim by Russia to the North Pole seabed and its resources. 

Last September, 175,000 square kilometres of previously-disputed territory was finally carved up between Norway and Russia, after 40 years of negotiations with regard to exploiting the area for its oil and gas drilling potential.

In the meantime, the European Commission is engaged in an effort to toughen rules covering accident prevention and liability for offshore oil drilling in response to BP's Gulf of Mexico spill.

Timeline

Further Reading

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